Economic Fears Pull Stocks Sharply Lower

Investors on Wall Street and around the world sold stocks with abandon Thursday, more convinced than ever that the United States and perhaps the globe are headed for a new recession.

The Dow Jones industrial average fell as much as 527 points, the second consecutive rout in the stock market since the Federal Reserve announced a change in strategy for fighting the economic slowdown.

One financial indicator after another showed that investors are quickly losing hope that the economy can keep growing. The price of oil and metals, both of which depend on economic demand, fell sharply. Traders bought bonds for safety.

"Markets rely on confidence and certainty. Right now there is neither," said John Canally, an economic strategist at LPL Financial, an investment firm in Boston.

Economic news was bad around the world. A closely watched survey in Europe indicated a recession could be on the way there, and a manufacturing survey suggested a slowdown in China, which has been one of the hottest economies.

"The probability of going back into recession is higher now than at any point in the recovery," said Tim Quinlan, an economist at Wells Fargo. He put his odds of a recession at 35 percent, the highest yet.

Christine Lagarde, the head of the International Monetary Fund, said the world economy was "entering a dangerous phase." She told an annual meeting of the IMF and World Bank that nations need credible plans to get their debt under control.

By late afternoon, the Dow was at its low of the day. At 3:30 p.m. EDT, the average was down 487 points, or 4.4 percent, at 10,637.

The Dow's lowest close this year is 10,719 on Aug. 10. The Dow has fallen more than 15 percent in two months, since traders began focusing on recession fears and the market was gripped by volatility.

On Thursday, investors looking for a safe place to put their money bought American government debt, which they see as less risky than stocks even as the nation wrestles with its long-term budget.

The yield on the 10-year Treasury note hit a record low of 1.71 percent, down from 1.86 late Wednesday. Yields fall as investors buy bonds and send their prices higher.

The Fed, adopting a new strategy to try to get the U.S. economy going, announced Wednesday that it would shuffle $400 billion of its own holdings in hopes of reducing interest rates on long-term loans.

The central bank hopes that allowing people and businesses to borrow money more cheaply will encourage them to spend it throughout the economy, providing a lift that could turn it around.

The Fed statement troubled investors. It offered a bleak assessment of the future of the U.S. economy, saying it sees "significant downside risks to the economic outlook," including volatility in overseas markets.

"In financial markets, the thinking seems to be: If the Fed is worried, the rest of us ought to be really worried," said Brian Gendreau, senior investment strategist at Cetera Financial Group.

Economists say the Fed action may help, but probably not much. The only thing that will help is for people and businesses to start spending more money, said Uri Landesman, president of Platinum Partners, a hedge fund.

"Counting on the Fed to get us out of this is a mistake," he said.

The price of commodities like oil and metals dropped steeply because investors worried that demand for them would fall if the world economy keeps slowing or falls into recession again.

Oil dropped more than $5 a barrel to $80.51, its lowest settling price since Aug. 9. The selling reflected concerns that world demand for oil would fall if the economy slows.

Michael Lynch, president of Strategic Energy & Economic Research, pointed to the dark outlook from the Fed and to a rare public warning by the chief economist of the European Central Bank that heavy government debt threatened the euro, the currency shared by 17 European nations.

"This is just sudden and strong confirmation that the economy is not improving," he said. "Energy demand is going to be very poor."

Silver fell 9.6 percent, and gold fell 3.7 percent. Earlier this summer, gold set one record high after another. Investors wanted it both as a safe place for their money and to cash in on what seemed an unstoppable run.

In a broader reading of the U.S. stock market, the Standard & Poor's 500 index fell 48 points, or 4 percent, to 1,118. That sent the S&P below its previous low point for the year, 1,119, reached in August.

The Nasdaq composite fell 106, or 4.2 percent, to 2,431.

Stocks fell sharply even though the New York Stock Exchange executed a rule designed to smooth trading. The exchange invoked Rule 48, which limits how much information is released about stock trades.

Stock volatility rose anyway. The VIX, an index that measures investor fear, rose 17 percent to 43.7, well above average.

It's common for stocks to move dramatically after the Fed makes a big announcement. But the number of trades that can be made instantly has also gone up in recent years, causing big swings to happen more quickly.

"These major moves are much more compressed, time-wise, than in the past," Landesman said. "A 5 percent move can now happen in a couple of minutes as opposed to a week or two."

Some analysts thought the heavy selling was an overreaction.

"The facts show we are not in a recession, and we are not borderline recession," Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi, wrote in a report Thursday.

The U.S. economy grew at an annual rate of 0.7 percent in the first half of this year, the slowest growth since the end of the Great Recession in June 2009. It would take much healthier growth, 4 or 5 percent, to bring unemployment down significantly.

The government reported Thursday that fewer Americans filed new claims for unemployment benefits last week. But the decline wasn't nearly enough to raise any real hope that the job market is getting better.

Elsewhere in the world, economic reports weren't much better. A gauge of European business activity fell to its lowest level since July 2009, and industrial orders in Europe fell in July.

The data suggest that constant gloom surrounding a debt crisis among European nations is causing people and businesses to cut back on spending, which could push the region into recession.

"Odds of Europe falling into recession are uncomfortably high and rising," said Ryan Sweet, an economist at Moody's Analytics.

Asian stocks were hammered to start the world's trading Thursday. The Nikkei index in Japan fell 2.1 percent. The main stock averages fell 2.9 percent in South Korea, 2.6 percent in Australia and almost 5 percent in Hong Kong.

Europe fared even worse. The stock market fell 5.3 percent in France and 5 percent in Germany. Besides the economic headache, Europe is wrestling with how to tame a big debt problem.

In the U.S., FedEx stock fell 9 percent after it said that it would earn less in 2012 than it had expected. The company is seen as an indicator because demand for shipping rises and falls with the economy.

The next big round of corporate earnings reports doesn't start for several weeks, but many analysts expect big companies can't sustain the strong profits they have posted for the last few quarters.

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We have not seen the bottom back in 2009. Stocks are a speculative bubble. This is like Tulip mania, South Sea bubble. Google for "STOCK MARKET KONDRATIEFF WAVE" to understand why.

September 28 2011 at 12:24 PM Report abuse rate up rate down Reply

The creation of a new government agency that will be dedicated to job creation, will only create more government jobs. What a joke! The government can’t create jobs. Our only hope is to support small businesses, which create the majority of new jobs. And you need to take control of your finances by getting financial education. The market is rigged against you. Your IRA and 401K are in danger of becoming worthless.

Learn how to leverage the financial crisis to create wealth and protect your family.

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September 23 2011 at 2:11 PM Report abuse rate up rate down Reply

All of this pessimism and volatility has created a great buying opportunity...

September 23 2011 at 7:56 AM Report abuse rate up rate down Reply

They were right . No recession! Were in a DEPRESSION!

September 23 2011 at 7:21 AM Report abuse +2 rate up rate down Reply

There is no doubt now, the world economy is in reverse. Jobs are disappearring, wages are falling, and measures by governments are making it worse. To fix the problem will be tough and there will be suffering, but so far that plan to fix things has yet to be presented. Instead governments are taking actions they say will be tough on the people, but WILL NOT fix the problem, it will only make it worse. By governments giving more money to prop up bankrupt entities, such as big banking and other huge institutions, the problem of even more toxic debt becomes apparent. How can the institutions who couldn't pay a smaller amount now pay back more, with even less resources? It can't happen. Right now so called rallies in the market seek to grab more money from the little investor, only to fall, and leave the investor will a loss.

To survive this economic wipe out in process, you must sell your stocks and commodities. These have been rallied to high levels by the investment banks, using "bailout money", to make their bottom lines look better. Although they still have alot of fraud to cover with their huge debt, which by the way, they don't have to count thanks to regulation changes. So instead of getting their houses in order, paying down their debt, and lending money like banks used to, they aren't lending, and using taxpayer money to make everything cost more by their ballooning the stock markets and commodities markets. They have blown through that money and now want more. They won't get it, and prices will fall, as will stocks and commodities.

Have cash on hand, and if you are able, short the markets, the returns will be huge. Soros and others, are doing this now. Gold too will crash, so get out, take any profit you have, or minimize your losses now. The scenerio unfolding is simple, a growing bigger spending government(s) having to take care of more people, with less workers to tax, and increasing taxes on those who do work. Eventually government entitlements, and giveaways such as welfare, will be reduced, lessening spending and causing continued drops in our standard of living.

If you want to avoid this, you need to act quickly, because some will believe that we are in a recovery and things are getting better, they are not. They are getting worse, protect what you have, if you are in the markets, get out, you can get back in after things settle, but that won't be till we see markets below 2008 - 2009 lowest levels.

September 23 2011 at 6:47 AM Report abuse rate up rate down Reply

Our government never got it "or cared" from the beginning of the recession. High energy costs which soared caused many that bought homes, to lose those homes. We continue to send our money overseas for overpriced oil to those that are our enemies. The government never worried about putting a cap on oil and let the speculators run rampent. We should have backed the in country oil producers and stopped sending our $$$ overseas. U.S. Companies are now playing the game. There is no trickle down money. Many companies use the excuse, "your lucky you have a job" and not giving pay raises and stopping yearly bonuses. And you wonder why we aren't spending our money. The thieves in Washington could care less about us. As they are getting theirs.

September 23 2011 at 4:14 AM Report abuse +2 rate up rate down Reply

The rich will pay one way or another.They have most all the wealth.If they go to cash...inflation will eat at it..if they go to gold oil ect....everything tanks in recession.They could take A loss on tips or any way they want their loss.HA HA HA HA HA HA HA!

September 23 2011 at 2:00 AM Report abuse +1 rate up rate down Reply
1 reply to goldaxe's comment

They could invest in the US and profit while helping their slaves,but they are too greedy and shortsighted.

September 23 2011 at 2:40 AM Report abuse rate up rate down Reply

stop the speculators and market makers from playing with oil and other commodities
i spend one third my pay check on gas to drive to work, another 3rd on oil to heat my house
and then have to live on the last 3rd..... mortgage, car,food, utilities so stop the b.s saying there is no consumer confidence, there is no consumer money to spend
get oil/gas back to 1.75/2.00 a gallon and the economies will improve alot, there will be more to do
in the u.s like stop sending jobs over seas, find away to make illegal imigrants pay taxes and stop being a burden on our system and tax payers, want to live here pay your share of taxes, imagine some one who never paid into social security, can get disability
back to illegal imigrants, alot of people dont realize the burden they place on our economy
medical, school there kids,not just school them but how much more infrstructure in school system do we need to
teach them, school buildings cost 20/40/60 million to build

September 22 2011 at 11:31 PM Report abuse +3 rate up rate down Reply

What's happening in the US isn't a double dip. The recession never ended nor did we have a recovery. All that happened was that government and the Fed dumped trillions of dollars into the economy, or more specifically into certain parts of the economy, and that threw everything off. What I mean is that this money distorted what was really happening in the economy so that while some sectors seemed to be perking up, the rest was falling apart. All through the so-called recovery, the economy was still shedding jobs and businesses were closing. That's not a recovery.

The big wigs are still saying this is a liquidity crisis. Well, it is, but not in the way they mean. The monetary system is in disarry because the government dumped too much money into it. There is a lot more money out there than the economy needs. Fortunately for now much of it is held up in bank accounts at the Fed of otherwise out of circulation. Eventually several trillion dollars will flood back on the street that that will really kick off inflation.

The problem is a lack of production. As others have said, much of that has been shipped overseas by ignorant politicians who have a complete misunderstanding of Free Trade, but that's a post of its own. Now, even the white collar R&D jobs are going overseas. Until this trend reverses, the fed can dump all the cash it wants and the government can tax and spend all it wants, but the economy will continue to crash. What is happening now is exactly what happened at the beginning of the Great Depression. If they keep up this Keynesian nonsense, it will end the same, with 20% unemployment (the real figure is already 16%), and widespread misery. Just wait until they try price controls, that will be REALLY fun.

September 22 2011 at 9:58 PM Report abuse rate up rate down Reply

As I read the comments below, I have to say, either America has been completely dumbed down or a whole lot children are playing online. Sadly, any chance to carry on a decent conversation or to debate the facts is to no avail. I see this in the entire political arena and this is exactly why nothing seems to get any better.

Obviously, the global markets are melting down once more because NOTHING was actually done to correct the situation last go round. Until the private sector is allowed to move up or down on their own as true capitalism calls for, no one will know who is or isn't bankrupt. Banksters cannot ask taxpayers to bailout the private sector anymore because they have bankrupted the governments of the world already.

September 22 2011 at 9:37 PM Report abuse rate up rate down Reply
1 reply to tevroc143's comment

So, what is stopping the private sector from acting to improve the economy?
Consumer demand and sentiment are down because people are out of work.
Businesses are not expanding because demand for their products and services is down.
Capital expenditures are being steered toward low cost emerging and developing nations to replace facilities in the US and other developed nations, if their laws and tax codes make it advantageous to do so.
So tell me, in the absence of any government action to prevent further job loss in our country and to stimulate economic growth in our country, just what is the private sector going to do?

September 23 2011 at 7:41 AM Report abuse rate up rate down Reply